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Call it the Trump rally in homebuilding — not the stocks, but the sentiment of the builders themselves.

A monthly reading of homebuilder confidence spiked 7 points in December, its first measure done after the presidential election.

The National Association of Home
Builders/Wells Fargo Housing Market Index (HMI) rose to 70, the highest
level since July 2005. Fifty is the line between positive and negative
sentiment. The index has not jumped by this much in one month in 20
years. It stood at 60 one year ago.

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A worker carries lumber as he builds a new home in Petaluma, California.

"This notable rise in builder sentiment is
largely attributable to a postelection bounce, as builders are hopeful
that President-elect Trump will follow through on his pledge to cut
burdensome regulations that are harming small businesses and housing
affordability," said NAHB Chairman Ed Brady, a homebuilder and developer
from Bloomington, Illinois.

"This is particularly
important, given that a recent NAHB study shows that regulatory costs
for homebuilding have increased 29 percent in the past five years,"
added Brady, whose name has come up as a possible head of the Federal
Housing Administration in the Trump administration.

Of the index's three
components, current sales conditions increased 7 points to 76, sales
expectations in the next six months rose 9 points to 78 and buyer
traffic rose 6 points to 53. This is the first time buyer traffic has
been in the positive since October 2005.

"Though this significant
increase in builder confidence could be considered an outlier, the fact
remains that the economic fundamentals continue to look good for
housing," said NAHB Chief Economist Robert Dietz. "The rise in the HMI
is consistent with recent gains for the stock market and consumer
confidence. At the same time, builders remain sensitive to rising
mortgage rates and continue to deal with shortages of lots and labor."

Mortgage rates have been on
the upswing since the election, with the average rate on the 30-year
fixed moving higher again Wednesday, after the Federal Reserve announced
its expected quarter-point hike in the Federal Funds rate and that it
would likely raise rates three times next year.

Despite rising rates, stocks
of the big public builders rose along with the rest of the market. They
did drop pretty sharply after Trump's Treasury secretary-designate,
Steve Mnuchin, suggested capping the mortgage interest deduction, a tax
benefit that is highly popular with homebuyers. The stocks then
recovered after that.

Homebuilder sentiment used to correlate closely
with housing starts, but the two have diverged widely since 2012, when
home prices hit bottom after an epic crash. Homebuilder sentiment has
risen relatively swiftly, but actual home construction is still well
below historical norms. Part of this may be due to the fact that the
survey mostly covers smaller custom builders and not the public
high-production builders, who have taken over considerable market share.
A similar survey by John Burns
Real Estate Consulting is weighted more toward high-production builders
and toward current sales. It found no change in sentiment after the
election. "Builders told us that sales
and expected sales are better than average, and traffic is slightly
worse than average. Since the builder responses were virtually identical
to the responses last month and last year, and this survey is weighted
59 percent to actual sales rather than sales expectations and buyer
traffic, I am surprised by the sharp increase in the [NAHB] index," said
Burns. Burns is not surprised, however, that builders were less phased by rising interest rates. "A strong economy is more important than interest rates," he added.